Tech giants like Microsoft, Amazon, and Google are opting to pursue alternative routes to expand their dominance in Generative AI. These behemoths traditionally acquired startups outright for their technology and talent. However, with regulators cracking down on mergers, these companies have found a new strategy: pseudo-acquisition.
Instead of an outright acquisition, they now hire away key employees and license technologies. These pseudo-acquisitions allow the tech giants to access and control the startups’ innovative technologies while bypassing regulatory oversight.
Hiring and Licensing Over Acquisition
Due to increased antitrust scrutiny, an outright acquisition has become riskier for the tech giants. An outright acquisition triggers an HSR filing under the Hart-Scott-Rodino Act, which requires companies to submit a pre-merger notification to both the FTC and DOJ if the deal meets certain thresholds (currently around $120 million). Once filed, the agencies have 30 days for an initial review. They can either clear the deal or request additional information, with which companies must fully comply. Preparing such a response may take weeks, especially with newly heightened filing requirements that went into effect on February 10, 2025.[1] If the agencies demand more data, their review can stretch from weeks to months, potentially leading to a legal challenge. Given how important speed and deal certainty are, tech giants, like any other company, work to avoid this level of scrutiny whenever possible. For example, Microsoft faced intense regulatory concerns for its $75.4 billion acquisition of Activision Blizzard from several governmental bodies.[2]
To bypass such regulatory hurdles, they now use hiring agreements and licensing to gain exclusive access to startups’ valuable resources. First, tech giants pay large bonuses to lure the startups’ key talents. Second, they pay a fee for a non-exclusive license to use the technology, which grants access to the startup’s technological assets (datasets, GPUs, and user base) and, perhaps more importantly, provides returns to the startup investors to avoid lawsuits resulting from mass hiring.
For example, in March 2024, Microsoft licensed Inflection AI’s technology for $650 million and hired nearly the entirety of its 70-person workforce to form the Microsoft AI team.[3] Microsoft paid $620 million for a non-exclusive license to AI models, while the additional $30 million was to waive legal rights related to mass hiring.[4] Investors got a 1.1-1.5x return from this licensing fee.[5] Similarly, Amazon lured away ~66% of 100 Adept AI’s employees and paid a $25 million licensing fee in June 2024, while Google hired 21% of 140 Character AI’s employees and licensed Character AI’s models in August 2024.[6]
Regulatory Scrutiny
The tech giants are paying huge sums to become first movers in a competitive Generative AI market and maneuvering in creative ways to win the race. In response, both the FTC and the DOJ have launched probes into these pseudo-acquisitions in 2024. For example, the FTC formally opened an investigation into Microsoft's Inflection AI deal in June 2024.[7] However, with a new administration in the White House, it is unclear whether any will lead to enforcement actions.
Perhaps the use of pseudo-acquisitions through licensing and hiring agreements is a temporary trend. It may have arisen due to a unique combination of an active regulatory environment and intense competition for first-mover advantage and could fade under the new administration. Or perhaps the technology industry has found a faster method to acquire key assets through these agreements and will continue to employ these tactics when seeking to acquire innovative technologies more quickly.
[1] Fed. Trade Comm'n, HSR Notification Forms, Instructions and Guidance, https://www.ftc.gov/enforcement/premerger-notification-program/hsr-notification-forms-instructions-guidance (last visited Feb. 27, 2025).
[2] Diane Bartz, US FTC Tries Again to Stop Microsoft's Already-Closed Deal for Activision, Reuters (Dec. 6, 2023, 3:49 PM), https://www.reuters.com/markets/deals/us-ftc-tries-again-stop-microsofts-already-closed-deal-activision-2023-12-06/.
[3] Krystal Hu and Harshita Mary Varghese, Microsoft Pays Inflection $650 Million in Licensing Deal While Poaching Top Talents, Source Says, Reuters (Mar. 21, 2024, 6:26 PM), https://www.reuters.com/technology/microsoft-agreed-pay-inflection-650-mln-while-hiring-its-staff-information-2024-03-21/.
[4] Kenn So, Unpacking Big Tech's Quasi-Acquisitions of GenAI Companies: The Rapid Takeover of Top AI Talent, Generational (Aug. 16, 2024), https://www.generational.pub/p/unpacking-big-techs-quasi-acquisitions.
[5] Id.
[6] Id.
[7] Dave Michaels & Tom Dotan, FTC Opens Antitrust Probe of Microsoft AI Deal, Wall St. Journal (Mar. 21, 2024), https://www.wsj.com/tech/ai/ftc-opens-antitrust-probe-of-microsoft-ai-deal-29b5169a.